9.5 - Signposting

Question 1

Monopsony - Consumer Impact

Answer 1

• 1) Consumers can benefit from lower prices.

Question 2

Monopsony - Consumer Impact (Evaluation)

Answer 2

1. Just because monopsonists are driving down supplier prices and can therefore benefit from
   lower costs, there is no guarantee that will translate into lower prices for the consumer directly.
2. Consumer can suffer from lower quantity however. This is because with monopsonists driving down
   prices of suppliers so heavily, suppliers are

Question 3

Monopsony - Firm Impact

Answer 3

1. The monopsonist is able to make higher profits

Question 4

Monopsony - Firm Impact (Evaluation)

Answer 4

1. Monopsonists must however be wary of the threat of intervention from competition
   authorities. Excessive abuse of monopsony can have detrimental impacts on suppliers and can attract
   regulation, which can harm the profitability and market dominance of a monopsonist.

Question 5

Monopsony - Supplier Impact

Answer 5

1. For the supplier, monopsony buying power will drive down prices, revenues and profits. This will
   promote inequity and negatively impacting living standards of the producer.

Question 6

Monopsony - Supplier Impact (Evaluation)

Answer 6

1. The negative impact on suppliers depends heavily on the extent of monopsony power. Pure
   monopsony is rarely seen in reality and therefore firms with monopsony power may still face some
   competition. As long as this is the case, there is potential for suppliers to renegotiate contracts in their
   favour with a monopsonist or to seek other buyers in the market.
2. Despite the cost to suppliers of monopsony power abuse, it cannot be ignored that suppliers can still
   benefit from having contracts with large firms

Question 7

Monopsony - Government Impact

Answer 7

1. Governments will be concerned with inequity, lower living standards for suppliers and potential
   industry decline when monopsonists abuse their buying power to reduce prices of suppliers.
2. As well as the problems with intervention by competition authorities discussed on pages
   105-106, it is important to determine whether actual abuse of monopsony power exists or whether
   demands for lower prices are due to supplier inefficiencies. If the latter is true, the call for lower prices
   will force suppliers to make efficiency savings, improving resource allocation and therefore is not a
   concern.